Kostecke CPA

The Solution to the Internet Sales Tax Problem Revealed

Internet sales tax problem revealedThere has been a lot of discussion about the proposed law to impose sales tax on internet sales. First of all, this is not a new tax. If you live in a state with a sales tax, you have always been required to pay “use tax” if the vendor did not collect sales tax. Very few people paid this tax, however, because it was hard to keep track of, or they just didn’t think they had to.

The proposed law requires internet stores with more than $1 million in annual sales to collect sales tax, even in states where they have no physical presence. Opponents of the bill say this will take too much time and money to implement and is an example of the over-reach of the federal government.

They do have a point. Sales tax laws are different in every state, and it isn’t just a matter of the percentage charged being different. There are special taxes that only apply to certain counties or cities. There are discrepancies in what is taxable and what is not. It’s difficult for anyone to fully understand the sales tax regulations even in their own state.

Streamlined Sales Tax Project

One thing you probably haven’t heard of is the Streamlined Sales Tax (SST) project. SST is a project that has been around since 2000 to simplify and (somewhat) standardize states’ sales tax. The governing board is made up of legislators and government officials from member states. Twenty-four states are full members of the project, and only one state that has a sales tax, Colorado, is not involved at some level with SST. Wisconsin has been a full member of SST since 2009.

States obviously have a lot to gain by passing this bill. It is estimated that states lost $23.3 billion in sales tax revenue in 2012 from internet sales. Wisconsin alone is estimated to have lost $289 million, which is approximately 9 percent of total Wisconsin sales tax and almost 3 percent of total state revenue. This revenue could be used to cover budget shortfalls, cancel budget cuts or delay income tax increases.

Who’s in favor of this tax?

The internet sales tax is controversial, but big business is lobbying for the bill. Large businesses with storefronts and warehouses on the ground, like Wal-Mart, Target, and Best Buy see a benefit. Even Amazon is for this law because they have warehouses and processing centers in several states, forcing them to collect sales tax, while smaller competitors do not.

Leveling of the playing field between brick-and-mortar and internet vendors will potentially help small businesses too. It could also mean more jobs in states (like Wisconsin) because there would be no advantage to locating these businesses in states with no sales tax.

However, some smaller internet sales companies are lobbying against the bill because they say the multi-state sales tax return preparation costs will reduce or eliminate their profit margins. Nobody wants to see small businesses have to spend their scarce resources filing sales tax returns in every state, except maybe your sales tax preparer.

Next steps

There’s a great opportunity here to fund major streamlining of sales tax reporting and payment partially through the extra $23.3 billion the states will receive under the new law. So come on states, let’s get together on this and figure out a way to make the sales tax process easy. Here’s an idea: Let’s have one place on the internet where you go to file your one multi-state sales tax return. You can pay online too. It will take no longer than an hour to fill out and it will be beautiful. I know some great contractors and my rates are reasonable. Call me!


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